‘Cable’ traded higher by around two cents last week as fading Federal Reserve rate hike bets allowed Sterling to rally on sanguine retail sales numbers.
Pound Moves Away from Worst Levels
The Pound to US Dollar exchange rate rebounded from a monthly low last Tuesday as UK inflation came in better-than-anticipated at 0.6% and US CPI slowed unexpectedly from 1.0% to 0.8%. Although the rise in British consumer prices is unlikely to have much of an impact on UK monetary policy – the Bank of England has already stated that it is willing to look through a ‘Brexit’ related spike in price pressures as it looks to soothe the pain of breaking the union – the surprise slowdown in US inflation could easily persuade cautious officials at the Federal Reserve to put off plans to tighten monetary policy in the near future. Indeed, GBP/USD rallied by around 150 pips following the print.
Sterling ticked higher again on Wednesday as UK unemployment printed at a joint-11-year low of 4.9% and jobless claims shrank -8,600. The Pound’s positive gains were helped by a fairly neutral minutes report from the US central bank, showing that most policymakers were happy to remain on the sidelines until further improvements in economic data were witnessed.
Retail Sales Drive Sterling Higher
The Pound strengthened by a further 120 pips against the ‘Greenback’ on Thursday in response to a shock 1.5% rise in UK retail sales. The robust print, which outpaced estimates of a -0.1% decline, reflected positively on the resilience of the UK consumer. Traders bought into the Pound in reaction to the sanguine result in the hope that buoyant consumer demand would shepherd the UK economy through the second half of the year – a time when many analysts expect Britain to slide into recession.
Sterling gave back some of its gains against the US Dollar on Friday due to rumours that the British government was planning to invoke Article 50 of the Lisbon Treaty, and therefore begin the two-year divorce from the European Union, as early as April 2017. This ran concurrent to hopes that government officials would wait until the end of 2017 to trigger the exit process, which spooked traders who believe that an early exit could provoke an enhanced economic downturn. A longer grace period, they believe, would allow institutions to plan stronger exit strategies.
Fed Statement in Focus
Although there are revisions to UK and US second quarter growth figures on the calendar this week, the main event is likely to be Federal Reserve Chairwoman Janet Yellen’s speech at the Jackson Hole Symposium on Friday.
Yellen has remained quiet of late, meaning this address could prove the most decisive driver of Fed rate hike bets going into September’s meeting. If Yellen sends out a signal that rates are likely to be raised next month then GBP/USD could sustain material losses, however, if the US central banker strikes a neutral tone then demand for ‘Cable’ could increase.